All other factors equal, how does the length of the benefit period affect the premium for a disability income policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The benefit period is the maximum length of time benefits will be paid during a disability, commonly two years, five years, or to age 65. A longer benefit period exposes the insurer to a larger maximum payout, especially for disabilities that last for years, so the premium rises accordingly. Along with the monthly benefit amount and the elimination period, the benefit period is one of the key benefit design choices that drive disability premium. Choosing a shorter benefit period is a common way to reduce the cost of a policy while retaining meaningful income protection for the insured.
Why the other options are wrong
- B) Spreading risk over more years does not reduce the premium; it increases the insurer's maximum exposure. A longer benefit period means the insurer may pay for a longer duration, which raises the expected cost of the policy.
- C) The benefit period is one of the principal pricing factors in disability insurance, alongside the monthly benefit amount, the elimination period, and optional riders. It directly affects the premium.
- D) The benefit period and the elimination period are separate design choices. The benefit period sets how long benefits run and drives premium, while the elimination period sets how long the insured waits before benefits begin.
Memory hook
Longer payout window = higher premium; benefits are priced on how long they can run.